Output effects of infrastructures in East and West German states

With respect to the recently ratified economic stimulus package in Germany, it is fundamentally important to observe whether the expansion of physical infrastructure will further contribute to economic growth. This paper presents a way to address the problem of endogeneity using panel data on 16 federal states in Germany and by estimating a panel vector autoregression model for the period from 1993 to 2006. The analysis offers practical benefits for economic policy, indicating that both human capital and transport infrastructures cause heterogeneous output effects in East and West Germany.